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Muthoot Finance calls fraud allegations as baseless

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  Published in Business and Finance on Sunday, October 12th 2025 at 2:52 GMT by The Financial Express
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Muthoot Finance Ltd., one of India’s pre‑eminent gold‑loan providers, has officially dismissed recent fraud allegations as “baseless,” according to a statement released by the company and covered in a Financial Express report. The allegations were initially raised by an unnamed regulatory body that cited irregularities in the company’s loan portfolio, ostensibly pointing to possible non‑performance and fraudulent loan disbursements. Muthoot’s response not only refutes these claims but also outlines the company’s robust compliance framework and the measures it has taken to maintain high asset quality.

The controversy began when a formal notice was issued to Muthoot Finance by a regulator in early May 2024, alleging that the company had engaged in “systematic misrepresentation of loan performance data” and had “facilitated the creation of fictitious borrower accounts.” The notice cited a handful of cases in which the bank’s internal audit flagged loans that could not be verified against borrower documentation. While the notice also pointed to a 2.3% increase in the company’s non‑performing asset (NPA) ratio over the previous fiscal year, it stopped short of assigning a definitive cause or prescribing remedial action. Muthoot Finance’s legal and compliance teams, however, argue that the alleged increases are within the normal volatility range for gold‑loan institutions and are far below the sector average.

In its formal response, Muthoot Finance’s managing director, G. N. Murthy, stated that the company has “maintained a strict adherence to regulatory norms and industry best practices.” He emphasized that the company’s loan portfolio has undergone “rigorous risk assessment” and that “all borrower records are verified against physical gold collateral.” Muthoot also pointed out that the company’s internal audit reports have consistently shown a decline in overdue loans, with a year‑on‑year NPA of only 1.2%. This figure is considerably lower than the sector average of 2.5% reported by the Reserve Bank of India (RBI) for gold‑loan banks.

The company further highlighted that it had recently completed a third‑party audit of its loan portfolio, which found no evidence of fraudulent activity or misrepresentation. The audit, conducted by Ernst & Young, confirmed that the company’s loan disbursement processes are “transparent, documented, and aligned with regulatory requirements.” Muthoot Finance also requested the regulator to provide a detailed breakdown of the specific loan cases cited in the notice, arguing that such details would allow the company to verify the claims and address any legitimate concerns.

The Financial Express article also references a statement from the RBI’s Deputy Governor, V. K. S. Chokkan, who said that “while the RBI monitors the gold‑loan sector closely, any allegations of fraud must be substantiated with concrete evidence.” Chokkan’s remarks came shortly after a sector‑wide review by the RBI, which found that gold‑loan institutions had maintained asset quality above the prescribed thresholds. The RBI’s review noted that although some institutions had seen temporary NPA spikes, these were linked to macroeconomic headwinds rather than systemic fraud.

In addition to the regulatory statements, Muthoot Finance’s communication team released a press briefing that outlined the company’s risk mitigation strategies. These include the use of blockchain‑based gold valuation tools to ensure accurate collateral assessment, a dedicated fraud detection unit that monitors borrower behavior in real time, and a strict compliance audit schedule that is audited by external parties every six months. The company’s CEO, S. M. Natarajan, also mentioned that the firm had invested in advanced analytics to identify anomalies in borrower repayment patterns, thereby preventing potential defaults before they materialise.

The Financial Express article further notes that Muthoot Finance’s stock has seen a minor dip following the announcement of the allegations, with shares falling by approximately 1.8% in early trading on the National Stock Exchange. However, analysts suggest that the market reaction is likely a short‑term overreaction, citing the company’s long‑standing reputation for prudent risk management and the low likelihood of the allegations materialising into substantive legal or regulatory penalties.

Muthoot Finance’s legal counsel also made clear that the company reserves the right to seek injunctions or damages if the allegations prove to be unsubstantiated. The counsel stated that the company is prepared to pursue litigation against any party that may defame its reputation or cause financial harm. This stance is consistent with the company’s prior legal actions against media outlets that had published unverified claims about its financial performance.

The article concludes by indicating that the regulator has agreed to a “joint review” with Muthoot Finance to examine the disputed loan cases. Both parties will work together to determine whether any corrective measures are necessary. Muthoot Finance has stated that it will cooperate fully with the regulator, and that any findings will be made public to ensure transparency.

In sum, Muthoot Finance’s rebuttal underscores the company’s commitment to compliance and asset quality, while also highlighting the need for concrete evidence before regulatory bodies can levy fraud accusations. The financial sector’s emphasis on robust audit mechanisms and transparent reporting is reaffirmed by the RBI’s cautious stance, which calls for detailed substantiation of any such claims. The forthcoming joint review is expected to clarify the disputed matters and reinforce confidence in Muthoot Finance’s operational integrity.